Deck 5: International Trade Theory

Question 1

The value of trade passing through the borders of all countries exceeds the amount of goods and services they produce.

Answer 1

False

Question 2

The importance of trade for a nation can be measured by ________.

A)examining the amount of wealth acquired by the national government through restrictive trade policies
B)the living standards of people involved in only trade activities
C)the number of acquired territories the nation has that serves as sources of inexpensive raw materials
D)examining the volume of its trade relative to its total output

Answer 2

D

Question 3

The smallest portion of the total world trade comprises trade between ________.

A)high-income and middle-income nations
B)low-income and middle-income nations
C)developed countries
D)First World member countries

Answer 3

B

Question 4

Discuss the dangers of trade dependency.

Question 5

Most of the world merchandise trade is composed of trade in ________.

A)minerals
B)services
C)manufactured goods
D)agricultural products

Question 6

________ says that nations should accumulate financial wealth,usually in the form of gold,by encouraging exports and discouraging imports.

A)Absolute advantage theory
B)Factor proportions theory
C)Mercantilism
D)Communism

Question 7

________ refers to the purchase,sale,or exchange of goods and services across national borders.

A)Domestic trade
B)Foreign direct investment
C)International trade
D)Mercantilism

Question 8

Discuss the volume of international trade,and explain the role government and chance play in the growth of international trade.

Question 9

Trade deficit occurs when the value of a country's imports is greater than the value of its exports.

Question 10

When a country's currency is weak relative to other nations,domestic products are more expensive than imports.

Question 11

The condition that results when the value of a country's imports is greater than the value of its exports is called ________.

A)a trade deficit
B)economies of scale
C)a break-even point
D)absolute advantage

Question 12

Scenario: Better Mousetrap Inc.
Better Mousetrap Inc.is a manufacturing company that sells pest control products.Recently the company launched an innovative mousetrap with a unique design that has been selling well in the U.S.market.Senior Vice President Marc Wallace,even recommended expanding sales overseas in order to increase company revenues.
In reviewing his fulfillment process,Jack realizes that different customers opt for different types of shipping based on their preferences.Which of the following would most likely help Jack provide better shipping service to his customers?

A)introduce overnight delivery but at a very high cost
B)reduce costs by implementing a cheaper but slower delivery method
C)implement a universal delivery method to capitalize on efficiency gains
D)offer customers a choice of delivery methods with different speeds and costs

Question 13

Trade in services tends to be relatively more important for the world's richest countries.

Question 14

The condition that results when the value of a nation's exports is greater than the value of its imports is called ________.

A)a trade deficit
B)a trade surplus
C)mercantilism
D)dumping

Question 15

According to Adam Smith,international trade should be restricted by tariffs and quotas in order to give a country an absolute advantage.

Question 16

A majority of the total world merchandise trade occurs among ________.

A)middle-income and low-income economies
B)high-income economies
C)newly industrialized countries
D)emerging markets

Question 17

The danger of trade dependency is that ________.

A)it often leads to the exploitation of developed countries
B)political turmoils in a country might affect all dependent countries
C)the countries involved in trade often get into rivalry over trade tariff issues
D)it is difficult to end trade activities with current trade partners and find new trade partners

Question 18

Describe the potential benefits of international trade.Why would a nation trading with a neomercantilist country be at a disadvantage?

Question 19

Most of the world's merchandise trade is composed of trade in agricultural products.

Question 20

International trade is the purchase,sale,or exchange of goods and services across national borders.

Question 21

Another term for neomercantilism is ________.

A)new trade
B)free trade
C)economic nationalism
D)political nationalism

Question 22

According to mercantilism,the accumulation of national wealth depended on the ________.

A)increase in a nation's trade surplus
B)increase in a nation's trade deficit
C)expansion of a nation's total value of trade
D)expansion of a nation's total volume of trade

Question 23

Trade between most nations is presently characterized by a certain degree of isolationism.

Question 24

The theory of absolute advantage destroys the mercantilist idea that international trade is a ________.

A)positive-sum game
B)zero-sum game
C)negative-sum game
D)win-win game

Question 25

Mercantilism states that nations should only concern themselves with accumulating financial wealth.

Question 26

Which of the following is true about the theory of absolute advantage?

A)The theory accepts the mercantilist idea that international trade is a zero-sum game.
B)The theory approves the objective of national governments to acquire wealth through restrictive trade policies.
C)The theory emphasizes that nations should open their doors to trade so that people can obtain more goods at cheaper rates.
D)The theory measures a nation's wealth by how much gold and silver it has on reserve.

Question 27

Today,countries seen by others as trying to maintain a trade surplus and expand their national treasures at the expense of other nations are accused of practicing ________.

A)totalitarianism
B)anti-mercantilism
C)social stratification
D)economic nationalism

Question 28

Nations following the theory of ________ believed that the world's wealth was limited and that a nation could increase its share of the pie only at the expense of its neighbors.

A)absolute advantage
B)comparative advantage
C)mercantilism
D)factor proportions

Question 29

Which of the following was a prominent mercantilist nation?

A)U)S.
B)China
C)Britain
D)Japan

Question 30

The measures of a nation's well-being other than the financial wealth accumulated through exports are irrelevant according to ________.

A)mercantilism
B)absolute advantage theory
C)factor proportions theory
D)new trade theory

Question 31

One of the major pillars upon which the practice of mercantilism rested was ________.

A)economies of scale
B)pricing mechanism
C)excessive imports
D)trade surpluses

Question 32

Which of the following refers to the ability of a nation to produce a good more efficiently than any other nation?

A)mercantilism
B)comparative advantage
C)absolute advantage
D)neomercantilism

Question 33

The theory of absolute advantage measures a nation's wealth by determining the ________.

A)amount of gold it has on reserve
B)quantity of minerals it has on reserve
C)total trade volume in the country
D)living standards of its people

Question 34

Mercantilist countries used to amass wealth by acquiring less-developed territories around the world.

Question 35

Mercantilism views competition for the world's wealth as a positive-sum game.

Question 36

Adam Smith believed that ________.

A)governments should determine trade flows
B)market forces should determine trade flows
C)international trade should be restricted by tariffs and quotas
D)countries should produce most goods themselves and trade as little as possible

Question 37

Who proposed the theory of absolute advantage?

A)David Ricardo
B)Adam Smith
C)Bertil Ohlin
D)Raymond Vernon

Question 38

Explain mercantilism.What were its major flaws?

Question 39

Discuss the three essential pillars of the theory of mercantilism.

Question 40

Which of the following statements is incorrect with regard to the importance of colonies for mercantilist nations?

A)They served as sources of inexpensive raw materials.
B)They served as markets for higher-priced finished goods.
C)They served as a source of military protection.
D)They served as a source of profits for mercantilist powers.

Question 41

Which of the following statements is true regarding the assumptions of the absolute and comparative advantage theories?

A)The theories assume that there are many number of countries engaged in the production and consumption of just two goods.
B)The theories assume that there are additional costs for transporting traded goods from one country to another.
C)The theories assume labor to be the only resource used in the production process.
D)The theories assume that specialization in the production of one particular good results in gains in efficiency.

Question 42

Both absolute and comparative advantage theories assume that ________ is the only resource used in the production process.

A)land
B)labor
C)capital
D)equipment

Question 43

The ability of a nation to produce a good more efficiently than any other nation is called its comparative advantage.

Question 44

The theory of comparative advantage was proposed by ________.

A)David Ricardo
B)Adam Smith
C)Bertil Ohlin
D)Raymond Vernon

Question 45

When there are gains to be had by both countries that are party to an exchange,international trade is considered a(n)________.

A)positive-sum game
B)equal-sum game
C)negative-sum game
D)zero-sum game

Question 46

The theories of comparative advantage and absolute advantage assume that countries are driven only by the maximization of production and consumption.

Question 47

Which of the following is an assumption made by the comparative advantage theory?

A)maximization of production and consumption
B)government interference and control in trade activities
C)creation of trade deficits
D)creation of trade surpluses

Question 48

When a country is not able to produce a good more efficiently than other nations,but produces the good more efficiently than it does any other good,it is said to have a(n)________.

A)absolute advantage
B)resource advantage
C)first-mover advantage
D)comparative advantage

Question 49

Country A produces a ton of coffee using one unit of resources.Country B produces two tons of coffee using one unit of resources.Which of the following is true regarding Country A and Country B?

A)Country A has an absolute advantage in producing coffee.
B)Country B has an absolute advantage in producing coffee.
C)Neither Country A nor Country B has an absolute advantage in producing coffee.
D)Both Country A and Country B have an absolute advantage in producing coffee.

Question 50

According to the theory of ________,trade is beneficial even if one country is less efficient in the production of two goods,as long as it is less inefficient in the production of one of the goods.

A)absolute advantage
B)mercantilism
C)comparative advantage
D)factor proportions

Question 51

Economist David Ricardo developed the theory of comparative advantage.

Question 52

The theory of absolute advantage destroys the mercantilist idea that international trade is a zero-sum game.

Question 53

A product's components are manufactured in a country that can produce them at a very low cost while maintaining its quality.These components are then assembled in another country where productivity in assembly is high.This process resembles the theory of ________.

A)comparative advantage
B)mercantilism
C)the international product life cycle
D)factor proportions

Question 54

Which of the following statements is true of the above scenario?

A)Foodland has a comparative advantage in producing drinks.
B)Drinkland cannot trade with Foodland because trade is too expensive.
C)Drinkland has an absolute advantage in producing drinks.
D)Foodland should stop producing food and just produce drinks.

Question 55

A third country,Funland,also produces food and drinks.In Funland,one resource unit produces 8 tons of food and 6 tons of drinks.Which of the following is true about Funland,Foodland,and Drinkland?

A)Funland has a comparative advantage in producing drinks.
B)Funland has a comparative advantage in producing food.
C)Funland has an absolute advantage in producing food.
D)Funland has an absolute advantage in producing drinks.

Question 56

If these two countries were to gain from trading with each other,this would support the notion that trade is a ________.

A)zero-sum game
B)negative experience
C)positive-sum game
D)form of economic nationalism

Question 57

Much production in the world today closely resembles what is predicted by the ________.

A)new trade theory
B)international product life cycle
C)theory of comparative advantage
D)theory of factor proportions

Question 58

Scenario: Foodland and Drinkland
Two countries,Foodland and Drinkland,produce food and drinks.In Foodland,one resource unit produces 20 tons of food and one resource unit produces 10 tons of drinks.In Drinkland,one resource unit produces 12 tons of food and one resource unit produces 24 tons of drinks.
Food Drinks
Foodland 20 10
Drinkland 12 24
Based on the above scenario,which of the following statements is true?

A)Foodland has an absolute advantage in producing food.
B)Foodland has an absolute advantage in producing drinks.
C)Drinkland has an absolute advantage in producing both food and drinks.
D)Drinkland has an absolute advantage in producing food.

Question 59

The theory of absolute advantage measures a nation's wealth by the standard of living of its people.

Question 60

To complete his business bookkeeping work each month,a business owner spends about 20 hours and in the process,has to give up $900 in income.If he hired a bookkeeper to do the work,the job would be completed in 15 hours and would cost him $600.Should the owner hire the bookkeeper or continue to do the work himself?

A)He should hire the bookkeeper because the bookkeeper has an absolute advantage in completing the books.
B)He should do the bookkeeping himself because he has an absolute advantage in completing the books.
C)He should hire the bookkeeper only if the bookkeeper agrees to give him a discount on the service price.
D)He should hire the bookkeeper only if the bookkeeper is willing to complete the work in 12 hours.

Question 61

The focus of factor proportions theory is on the ________.

A)productivity of the production process
B)cost-effectiveness of the production process
C)use of depleting production factors
D)use of expensive production factors

Question 62

The ________ theory states that a country's export eventually becomes its import.

A)competitive advantage
B)factor proportions
C)international product life cycle
D)new trade

Question 63

The international product life cycle theory was developed by ________.

A)Milton Friedman
B)Karl Marx
C)Michael Porter
D)Raymond Vernon

Question 64

During which stage of the international product life cycle theory does demand rise and remain sustained for a fairly lengthy period of time?

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage

Question 65

The international product life cycle theory was put forth for ________.

A)service goods
B)abundant resources
C)manufactured goods
D)natural resources

Question 66

Explain how the theory of absolute advantage conflicts with the theory of mercantilism.

Question 67

The theories of comparative and absolute advantage assume that specialization in the production of one particular good results in efficiency gains.

Question 68

Factor proportions theory differs from the theory of comparative advantage in that the focus of factor proportions theory is on the ________.

A)usage of the most abundant factors of production,while the focus of the comparative advantage theory is on the productivity of the production process
B)accumulation of financial wealth in the form of gold by encouraging imports and discouraging exports,while the comparative advantage theory focuses on usage of the most abundant factors of production
C)productivity of the production process,while the comparative advantage theory focuses on maximization of production and consumption
D)minimization of trade surpluses,whereas the comparative advantage theory focuses on the mercantilist idea that international trade is a zero-sum game

Question 69

The Leontief paradox describes evidence ________.

A)in support of the predictions of the mercantilist theory
B)contrary to the predictions of the factor proportions theory
C)that the assumptions of international product life cycle theory are invalid
D)that the assumptions of the new trade theory are invalid

Question 70

Explain the theory of comparative advantage using an example,and describe its assumptions and limitations.

Question 71

During which stage of the product life cycle are companies looking for low-cost production bases in developing nations to supply a growing worldwide market?

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage

Question 72

The ________ theory states that countries produce and export goods that require resources available in abundance and import goods that require resources in short supply.

A)new trade
B)absolute advantage
C)international product life cycle
D)factor proportions

Question 73

Discuss the factor proportions theory and describe the evidence on this theory.

Question 74

Factor proportions theory was developed by ________.

A)Smith and Ricardo
B)Ricardo and Ohlin
C)Heckscher and Ohlin
D)Heckscher and Smith

Question 75

Factor proportions theory states that factors in great supply relative to demand will be more costly than factors in short supply relative to demand.

Question 76

Explain the factor proportions theory and discuss why it is at odds with the new trade theory.

Question 77

How does the theory of comparative advantage differ from the factor proportions theory? Include a description of the factor proportions theory in your answer.

Question 78

The factor proportions theory of international trade was developed by Wassily Leontief.

Question 79

Factor proportions theory states that a country will produce and export those goods that require resources abundantly available within the country.

Question 80

During which of the following stages of the international product life cycle theory does high purchasing power and buyer demand in an industrialized nation encourage a company to design and introduce a product concept?

A)product decline stage
B)new product stage
C)maturing product stage
D)standardized product stage